Gov’t keeps growth goal of 2.6-3.6% this year

The government is sticking to its 2010 economic growth target of 2.6-3.6 percent, with gains in services and other sectors expected to offset weaker farm output, a Cabinet official said on Wednesday. Economists, however, cautioned against too much optimism, saying the impact of a power shortage should not be discounted. Drier-than-usual weather has parched many farmlands in the country, prompting the government to cut its output forecast for rice, the main crop, for the first half. The National Disaster Coordinating Council has estimated the damage from an ongoing El Niño-induced dry spell at P8.5 billion, and it is climbing. Farm production accounts for around a fifth of the Philippines’ gross domestic product (GDP), which grew by 0.9 percent in 2009. "There may be a reduction in our agricultural output, but there will definitely be gains in other sectors," Acting Socioeconomic Planning Secretary Augusto B. Santos said in a statement. Remittances grew by 8.5 percent year on year in January compared with just 0.1 percent a year earlier. Exports, meanwhile, rose by 42.5 percent, the highest in 15 years. In a text message, Santos told BusinessWorld: "We maintain the 7-9 percent export growth [goal] for the meantime but for remittances, I expect it to exceed the 6 percent full-year target of the Bangko Sentral ng Pilipinas due to global recovery." While the government is reviewing its macroeconomic targets, "more likely it will maintain the 2-6-3.6 percent growth [goal] amid various risks," he added. "For now, we are looking at a moderate El Niño, the impact of which is projected to be a minimal 0.1 percentage point less GDP growth," Dennis M. Arroyo, National Economic and Development Authority director, said. "There is a global economic rebound this year and there are good signs coming. Exports are rebounding although we have El Niño. Also, inflation is moderate," Santos said, but noted there were also risks. "We are aware that the world recovery remains fragile," he said, adding that rising crude oil prices might put pressure on consumer prices and could lead to higher utility rates. Asked to comment, University of the Philippines economist Benjamin E. Diokno said: "El Niño will affect [the] agriculture sector, which is about 18-19 percent of the economy, but the power outages could have a far-ranging effect on manufacturing, tourism, wholesale and retail trade, and banking activities." Diokno, a former Budget secretary, added that "remittances only account for 10-12 percent of GDP and with the appreciation of the peso, the peso value of remittances might not increase significantly." Exports will also be sensitive to a stronger peso, he said, with economic growth likely hitting just 2.9 percent. University of Asia and the Pacific economist Peter Lee U noted that while gains in remittances and exports could offset losses in agricultural output, "the indirect effect [on] nonagriculture sectors is unclear as damages due to power outages remain nonquantifiable." U expects the economy to grow by 3-4 percent, with remittances expanding by 9-10 percent and exports hitting the government target. — BusinessWorld, with a report from Reuters